Radio ban ... Mark Knopfler of Dire Straits in 1985. The band's hit Money for Nothing has been deemed unfit for broadcast in Canada. Photograph: Cine Text/Allstar

Canada's radio watchdog is defending a controversial decision to ban the uncut version of Dire Strait's 1985 hit Money for Nothing. Despite many complaints – including criticism from a member of the band – officials are not backing down, insisting the song's offensive lyrics make it unsuitable for broadcast.

Although it has become a rock'n'roll anthem, Money for Nothing contains three instances of the anti-gay slur "faggot". Last week, the Canadian Broadcast Standards Council (CBSC) reviewed the song after receiving a complaint from a listener in Newfoundland. Its lyrics were found to be "unacceptable", contravening the human rights clauses of the Canadian Association of Broadcasters' code of ethics. It has been banned from radio stations nationwide.

Dire Straits' keyboardist, Guy Fletcher, was quick to criticise the ruling. "I reckon Canada could ban about 75% of ALL records ever made," he wrote on his website. "WHAT a waste of paper." Although "a part of me understands the decision", he wrote, "you can and should be allowed to write a song or poem and use language that is or has been in use by real people in everyday life ... MFN does not 'celebrate' a slur. In it, Mark [Knopfler] uses real everyday US street language to describe how a numbskull worker in a hardware department ... feels about a video being shown. The fact that the [CBSC] can make a ruling such as this, completely missing the context in which it's used says rather a lot about the society in which we live."

Many Dire Straits fans are up in arms, sending letters and petitions to the CBSC. At least three Canadian stations, two in Alberta, one in Halifax, have protested against the ruling, playing the unexpurgated song continuously for an hour. But others feel differently. Jason Roberts, a DJ at Edmonton's EZ Rock station, told Quebecor Media: "I love the song, but I'm kind of riding the fence here. It's 2011. Nobody uses that word any more."

At xtra.ca, a website aimed at gay and lesbian Canadians, the reactions seem split. But comments by one writer, Keith, exemplify the CBSC's reasons for banning the track: "When Dire Straits released Money for Nothing back in the 80s, it made me sick," he wrote. "As a teenager growing up in a small hick town in Ontario, it really bothered me as a closeted gay kid. I've been waiting 30 years for something to be done about it."

"The number of complaints is irrelevant," said Ronald Cohen, national chair for the CBSC. "Everybody is on our back about it, [but] I think it was absolutely the right decision. This is a word that has no place today on the airwaves."

Dire Straits formed in London in 1977. They have not performed since 1995.